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Why Do Analysts Expect a Steep Decline in Macy’s 1Q16 Earnings?

Sharon Bailey

Can Macy’s Strategic Initiatives Save Fiscal 1Q16?

(Continued from Prior Part)

Subdued outlook

In February 2016, Macy’s guidance indicated a tough business environment in 2016. In the 4Q15 conference call in February 2016, Karen M. Hoguet, Macy’s chief financial officer, stated that the company’s same-store sales, on an owned plus licensed basis, are anticipated to decline by about 1% in fiscal 2016. As mentioned in Part 1 of this series, the company expects its fiscal 2016 total sales to decline by ~2%. Hoguet also indicated that the company doesn’t expect same-store sales to turn positive until the fourth quarter of fiscal 2016.

Based on this sales outlook, the company expects its fiscal 2016 adjusted EPS (earnings per share) to be $3.80–$3.90 compared to $3.77 in fiscal 2015. Analysts expect Macy’s fiscal 2016 adjusted EPS to rise 1.6% to $3.83.

Historical earnings trend

Macy’s adjusted EPS declined in all four quarters of fiscal 2015, which ended January 30, 2016. For fiscal 2015, Macy’s adjusted EPS, which excludes the impact of one-time items, declined by 14.3% on a year-over-year basis. This decline was primarily caused by lower sales and a fall in margins. The iShares Global Consumer Discretionary ETF (RXI) has 0.3% exposure to Macy’s.

The adjusted EPS of peers Nordstrom (JWN), Kohl’s (KSS), and Dillard’s (DDS) declined by 10.8%, 5.4%, and 14%, respectively, in fiscal 2015.

Expectations for 1Q16

Analysts expect Macy’s adjusted EPS for 1Q16, which ended April 30, 2016, to decline by 32.1% to $0.38. Weakness in 1Q16 sales and expected gross margins are likely to impact Macy’s earnings in 1Q16. Macy’s is expected to announce its 1Q16 results on May 11, 2016. We’ll assess the changes in the company’s stock price in the next part of this series.

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